Natural Gas Corner - Market Update - Is $1.250 Natural Gas Coming?

Natural gas prices have come under heavy selling pressure over the first two trading days of the week with the nearby March 16 contract losing nearly 15% from the high posted on Friday down to today's $1.976/MMBtu low.

Weather forecasts have turned generally milder although the NWS 8-14 day forecast is calling for colder temperatures in the eastern U.S.  The longer range 30 and 60 day forecasts are generally neutral to bearish for natural gas prices across most parts of the country.

Domestic storage of 3,086 Bcf, 16%+ above the 5-year average, continues to overshadow possible weather-related demand keeping pressure on prices.  With roughly 9 weeks left (or possibly less if longer range forecasts are correct) in the current winter, end of March storage for 2016 is on track to surpass the 2,000 Bcf mark.  This would be the second largest end of winter storage on record. 

The natural gas rig count last week fell again to a new all-time low of 122 rigs for week ended 01-29-16 according to Baker-Hughes but has not yet affected production. U.S. dry-gas production is currently 72.6 Bcf per day according to Bentek, holding up surprisingly well as producers attempt to squeeze every last penny possible out of their current wells in a bid to remain solvent.  Whether or not this strategy can work in the current price environment remains to be seen but lower prices are not decreasing production as is typically the case with commodities.  In the case of natural gas and crude oil, lower prices are perversely increasing production which in turn is leading to even lower prices.

How low natural gas prices may fall before bottoming is very much in question.  The crude oil market looks like it could easily fall to the $16-20/barrel level, 35-40% below the current spot market price.

With U.S. natural gas stocks historically high, demand weak and production holding within 2 Bcf of a record high, a perfect storm could be setting up in the market.  And a $1.250-1.500/MMtu spot market price for natural gas could quickly become a reality.